International trade is the exchange of goods and services between countries. Trade is driven by different production costs in different countries, making it cheaper for some countries to import commodities rather than make them. Today, all countries are involved in, and to varying degrees dependent on, trade with other countries.
A country is said to have a comparative advantage over another when it can produce a commodity more cheaply. A country's comparative advantage is determined by key factors of production such as land, capital and labour; more recently, information and communications capacity has become important.
National trade policies and practice tend to waver between protecting national interests and domestic industry to limit the import of goods and services (known as protectionism), and promoting free trade. When the international exchange of goods is neither hindered nor encouraged, trade is referred to as being free trade. Neo-liberals argue that a free trade system is most efficient because it allows countries to use their resources to best advantage, producing the goods they are best placed to produce, and importing others, thus driving economic growth. Others argue that even under a system with limited trade barriers or none at all, “free trade” is hampered by restrictions on labour mobility, monopolies on production and, not least, political imperatives (for example countries wanting to maintain self-sufficiency in key production areas such as food).
Trade has always been an important feature of the global economy but during the 1990s international trade grew by nearly 8.6% a year. In 1990 alone, the growth in trade in services was 19%. The top 500 multinational corporations (MNCs), 90% of which are based in the United States, Europe and Japan, now account for 50% of international trade. Trade is a key driving force for globalization and is the subject of a number of international agreements that aim to govern and facilitate international trade. These agreements, initially negotiated through the General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization (WTO), include the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and the General Agreement on Trade in Services (GATS).
The two cornerstones of the multilateral trade agreements governing the international trading system are:
- Most-favoured-nation (MFN) status. This guarantees non-discrimination, or equal treatment, for all countries. It requires each Member State of the WTO to treat all fellow Members equally with regard to trade. As a result, any trading advantage or discrimination applied to one country must be applied to all. Thus, a country cannot treat products differently on account of their origin. Most-favoured-nation status did not always mean equal treatment. In the 19th century, when a number of early bilateral MFN treaties were signed, being included among a country's “most-favoured” trading partners was like being in an exclusive club because only a few countries enjoyed the privilege. Now, with more than 100 countries in the WTO, the MFN club is no longer exclusive.
- National treatment. This requires that imported and locally-produced goods be treated identically in terms of competitive opportunities in the importing country. National treatment applies only once a product, service or item of intellectual property has entered the market. Therefore, charging customs duty on an import is not a violation of national treatment, even if locally-produced products are not charged an equivalent tax. The principle of national treatment is found in all three main WTO agreements (Article 3 of GATT, Article 17 of GATS and Article 3 of TRIPS), although the principle is handled slightly differently in each. For example, under GATS, a member can schedule exemptions from national treatment.
A trade deficit occurs when, in a given period, a country buys more goods and services from abroad than it sells abroad. The relationship between a nation's imports and its exports is called the terms of trade. There is a decline in terms of trade when import prices rise faster than export prices and rising terms of trade occur when relative export prices grow faster.
Until relatively recently trade has not been seen as a crucial part of health policy. Today, it is becoming one of the most influential forces. People working in health policy need to be able to track developments in trade and monitor their impacts - not only the movement of disease across borders, but the impact on prices and services. Health policy-makers now have to advocate for a more equitable distribution of the benefits of trade, particularly to ensure that the poorest benefit. They also need to ensure policy coherence and undertake cross-sector dialogue and monitoring to influence the way, for example, the TRIPS and GATS agreements affect health.
Health is, of course, intrinsically caught up in development processes, but these processes can no longer be framed purely by the confines of a particular nation state. International trade liberalization and international systems of intellectual property rights, for example, both affect the price of medicines and access to drugs, however remote a particular health post may be. Therefore, the risks and opportunities of trade liberalization for health need to be carefully assessed. The impacts of trade on health include:
- Growing cross-border health risks, fuelled by contaminants in traded food, increasing levels of tobacco consumption and greater flows of people across borders. All of these can increase transmission of communicable and non-communicable diseases.
- Increasing trade in health products and services: exports of pharmaceuticals from Organisation for Economic Co-operation and Development (OECD) countries increased from US$6 billion in 1975 to US$53 billion in 1994 and are now affected by the TRIPS agreements. Trade in health services, while still relatively modest, is now subject to the rules of the GATS agreement.
- Removal of tariffs and export taxes: this can reduce the tax revenues and in turn may reduce public resources for, for example, health.
- Lifestyle changes: the increased marketing of rich-country lifestyles and consumption patterns in developing countries is increasing the consumption of tobacco, alcohol and high-fat or high-sugar foods.
Impact on trade sectors that affect health, including agriculture, environment, water and sanitation, energy, and transport. Trade can expand access to a range of foods and improve nutrition, but production of food for export may also increase the use of unsafe chemicals. The Agreement on Sanitary and Phytosanitary Measures deals with food safety and trade.